Standard & Poor's Ratings Services reported today that Structured Investment Vehicle (SIV) exposures in its principal stability-rated funds are down more than 40% during the past two months.
We currently assign Principal Stability Fund Ratings (PSFRs) to nearly 500 money market-type funds in the U.S. and Europe. Assets of all funds with our PSFRs now total more than $2 trillion, with 25% (or $500 billion) in the 10 largest rated funds. Approximately 250, or 50% of these rated funds are eligible to purchase CP and other structured investment products.
As of early November, 87 principal stability rated funds had exposure to SIVs representing approximately $50 billion; this was down 42% from $86 billion in SIV exposure among 109 rated funds at the end of August. This decrease can be largely attributed to maturity of existing holdings, but there have been a few instances in which the sponsors of rated funds purchased SIV holdings.
At this time, the average total SIV exposure of funds with our PSFRs is 6.25% and the average holding size of any one SIV issuer is 1.35%. The most widely held SIV amongst funds with our PSFRs is Sigma Finance, with Cullinan Finance and Links Finance a close second and third, respectively (see table 1 for the top 10 program exposures).
Table 1
SIV Exposures By Program
SIV
Sponsor
Total invested by funds with Standard & Poor's PSFRs (Mil. $)
No. of funds with Standard & Poor's PSFRs with exposure
Sigma Finance Corp.
Gordian Knot Ltd.
7,496
46
Cullinan Finance Ltd.
HSBC Bank PLC
6,348
44
Links Finance Corp.
Bank of Montreal
6,335
33
K2 Corp.
Dresdner Kleinwort
3,582
23
Beta Finance Corp.
Citibank International PLC
2,875
34
Sedna Finance Corp.
Citibank International PLC
1,985
16
Whistlejacket Capital Ltd.
Standard Chartered Bank
1,953
19
Five Finance Corp.
Citibank International PLC
1,922
15
Harrier Finance Funding Ltd.
WestLB
1,895
17
Tango Finance Corp.
Rabobank International
1,844
20
Data as of November 2007.
Currently, of the nearly 30 SIVs in the market, these four SIV programs are not being held by our principal stability-rated funds: Abacas Investments Ltd., Cortland Capital Ltd., Eaton Vance Variable Leveraged Fund, and Rhinebridge PLC. All but Rhinebrige PLC are nonbank-sponsored SIVs (see table 2 for a complete list of rated fund exposures to nonbank-sponsored SIVs).
Table 2
Nonbank SIV Exposures By Program
SIV
Nonbank sponsor
Total invested by funds with Standard & Poor's PSFRs (Mil. $)
Sigma Finance Corp.
Gordian Knot Ltd.
7,496
Victoria Finance Ltd./Stanfield
Ceres Capital Partners
1,811
Cheyne Finance PLC
Cheyne Capital Management Ltd.
1,418
Axon Financial Funding Ltd.
Axon Asset Management Inc.
1,320
Orion Finance Corp.
Eiger Capital Management
230
Hudson-Thames Capital Ltd.
MBIA
184
Nightingale Finance Ltd.
Banque AIG
122
Abacas Investments Ltd.
N.S.M. Capital Mgt/Emirates Bank
0
Cortland Capital Ltd.
IXIS/Ontario Teachers
0
Eaton Vance Variable Leveraged Fund
Eaton Vance
0
Data as of November 2007.
Based on the maturity profile of the SIV holdings, we expect to see continued decreases in exposures as approximately 20% of rated fund SIV investments mature by Dec. 31, 2007, and another 30% mature by March 31, 2008. We will continue to monitor the credit markets actively and maintain constant dialog with our rated fund clients and with Standard & Poor's Structured Finance Group. To date, we have not taken rating actions on any rated principal stability funds due to the proactive measures fund sponsors are taking to protect the funds' net asset values (NAVs).
About Our PSFRs, Also Called Money Market Fund Ratings
PSFRs are generally assigned to SEC-registered (2a-7) money market funds, government investment pools, separate accounts, and other managed pools of fixed-income assets whose objective and investment policies are intended to provide a stable (i.e. $1.00 per share) NAV. PSFRs may also be assigned to non-U.S.-domiciled funds with an accumulating share value.
PSFRs range from 'AAAm' (extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit, market, and/or liquidity risks) to 'Dm' (failure to maintain principal stability resulting in a realized or unrealized loss of principal). The 'm' distinguishes the PSFR from our traditional debt ratings, which are usually not subscripted and that indicate our opinion of a borrower's ability to repay principal and interest on a timely basis.
As part of our fund rating process, we review principal stability-rated funds weekly. This review includes an evaluation of cash-flow activity, asset allocation, maturity distribution, NAVs, credit quality, and all portfolio holdings. This information is evaluated to maintain current assessments of each fund's credit and market risk. If there is a specific event that we perceive might affect our rating, we review it promptly. Fund analysts maintain an open dialog with the portfolio management team throughout the year. We conduct annual, generally on-site, fund management review meetings for all rated funds.
Analytic services provided by Standard & Poor's Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.
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